US securities regulator rolls out five-year exemption for tokenised stock trading

The US Securities and Exchange Commission has announced a five-year exemption allowing companies to offer trading in tokenized or blockchain-based stocks, marking a significant step towards integrating digital assets into traditional markets. This exemption, known as the Innovation Exemption, will exempt tokenized stock platforms from many rules that apply to traditional exchanges like the Nasdaq and NYSE.

It also provides liquidity providers with a five-year exemption from dealer registration requirements. Platforms are required to notify companies before listing tokenized versions of their stocks, and would be prohibited from offering those products if the issuer objects. Synthetic tokens offering exposure through derivatives are not permitted under this exemption.

The crypto industry believes that tokenizing securities could revolutionize markets by enabling 24/7 trading, instant settlement, increased liquidity, and reduced transaction costs. It could also facilitate investor self-custody and fractional ownership of shares. SEC Chair Paul Atkins explained that the exemption is necessary due to the substantial challenges platforms face in complying with federal securities laws without making significant changes to their business models.

The move comes amid the failure of the US Senate to advance comprehensive cryptocurrency legislation, a setback for digital asset companies and Republicans who had championed the bill. Analysts and attorneys suggest that this exemption could pave the way for major structural changes in equities markets, allowing crypto upstarts to compete directly with traditional brokerages.

The SEC also highlighted that tokenized stock trading could enhance transparency and enable investors to self-custody their assets. This innovation exemption is part of a broader SEC crypto policy shift under President Trump, who had previously advocated for ending a Democratic crackdown on the industry.